London Stock Exchange shareholders approve £20bn merger with Deutsche Börse

Shareholders of London Stock Exchange Group have voted almost unanimously in favour of its merger with Deutsche Börse, overcoming the bourses' first hurdle in their bid to create a pan-European exchanges champion.

More than 99 per cent of votes cast at a court meeting on Monday were in favour of the deal that would give investors, including the Qatar Investment Authority, BlackRock and Invesco, a 46 per cent stake in a new London-based company. Virtually all shareholders at a general meeting also voted in favour.

A combination of Europe’s two largest exchange operators by market capitalisation would create a powerhouse able to rival the world’s largest market operators CME Group, Intercontinental Exchange and Hong Kong Exchanges and Clearing.

The merged company, which would be headed by Deutsche Börse’s Carsten Kengeter, would become the world’s largest exchange in terms of total income. It would be one of the biggest for equities listings and would control more derivatives trades than any other entity in the world.

Future

However, the future of the deal has been thrown into doubt by the UK’s vote to leave the EU. Politicians and the financial watchdog in Germany have voiced concern that the oversight of part of their critical market infrastructure could be headquartered outside the EU.

The tie-up may also face renewed scrutiny from shareholders after François Hollande, president of France, said the City of London should no longer be able to clear euro-denominated trades. Part of the rationale for the deal is to allow investors to net the margin they must post to back their derivatives trades at each company’s clearing house - LCH and Deutsche Börse’s Eurex.

The companies have said they are pressing ahead with the deal and have set up a referendum committee to examine ways the combined group will meet all its regulatory requirements.

Following the EU referendum they said the result “does not impact the compelling strategic rationale of the merger”.

John Colley, professor of practice in the strategy & international business group at Warwick Business School, said the rationale for the merger had “undoubtedly changed”.

Compromise

“The compromise was a London head office and a Deutsche Börse CEO. Frankfurt must now see its chance of becoming the dominant financial centre in Europe as trading is switched from London. The EU will want to see the trading housed within its own boundaries, with Paris and Frankfurt scrapping it out.”

The final decision in Germany will be taken by the economics ministry in the state of Hesse, where Frankfurt is located. The deal must also pass antitrust scrutiny in Brussels, the UK and the US.

On Monday Donald Brydon, LSE chairman, said: “I would like to thank our shareholders for their strong support for the merger.”

Owing to the structure of the deal and local regulations, Deutsche Börse will not hold a shareholder meeting but will make a tender offer for shareholders that closes on July 12.

– Copyright The Financial Times Ltd/Reuters